TODAY’S S&P 500 SET-UP – January 20, 2012


As we look at today’s set up for the S&P 500, the range is 22 points or -1.64% downside to 1293 and 0.04% upside to 1315. 












OVERBOUGHT – from the Hang Seng (+9.1% YTD) to the DAX (+8.2% YTD) and back again to the SP500 (+4.5% YTD), this season is not even 3 weeks old and we’ve already realized what we think is an outstanding YTD return on equity given the Bernank calls risk free 0%. Immediate-term overbought lines for HK, DAX, and SPX are 20,113, 6424, and 1315, respectively.


DEFLATING THE INFLATION – this is Global Macro Theme #2 for us here in Q1 and it really matters – across the board we’re seeing the impact of a Strong Dollar on DEC CPI and PPI prints across the world (US CPI dropped to 3.0% DEC vs 3.4% NOV, German PPI drops this morn to 4.0% DEC vs 5.2% NOV, New Zealand CPI falls hard to 1.8% in Q4 vs 4.6% Q3).

  • ADVANCE/DECLINE LINE: 922 (-851) 
  • VOLUME: NYSE 806.03 (+1.04%)
  • VIX:  19.87 -4.88% YTD PERFORMANCE: -15.09%
  • SPX PUT/CALL RATIO: 1.11 from 1.67 (-33.53%)



TREASURIES – it took all week for the bond market to give The Fed something to think about (as Growth expectations rise, interest rates should), but this breakout above my immediate-term TRADE line of 1.95% support for 10s matters. Seeing the 10yr consistently close > 2.03% would be very bearish for the long-bond, bullish for stocks (especially Financials).

  • TED SPREAD: 52.05
  • 3-MONTH T-BILL YIELD: 0.03%
  • 10-Year: 1.99 from 1.98
  • YIELD CURVE: 1.76 from 1.74


MACRO DATA POINTS (Bloomberg Estimates):

  • 10am: Existing home sales, Dec., est. 4.65m, up 5.2% (prior 4.42m)
  • 10am: API monthly report
  • 1pm: Baker Hughes rig count



  • Sales of previously owned U.S. homes probably rose 5.2% in Dec. to 4.65m annual rate, highest level in more than a year, economists est.
  • General Electric reports pre-mkt; has outperformed since Dec. investor meeting
  • JPMorgan, State Street and Ameriprise Financial among final bidders for asset management division of Deutsche Bank: Reuters
  • U.K. Dec. retail sales rose 0.6%, matching median forecast
  • IMF cuts global growth forecast for 2012, Telegraph says, citing leaked memo
  • Eastman Kodak got approval to borrow as much as $650m to support ops as it pursues patent sales
  • European banks have until end of today to tell national regulators how they plan to meet capital targets, to then be discussed by European Banking Authority
  • NYSE Euronext head says exchange may appeal if Europe blocks merger with Deutsche Boerse: WSJ
  • Samsung Electronics lost patent infringement suit against Apple at court in Mannheim, Germany; first decision in group of patent cases cos. filed against each other in the country
  • Carnival Corp. suspended broadcast, digital and direct-mail marketing for its namesake line
  • Senate Minority Leader Mitch McConnell urged Democratic leaders to shelve anti-piracy bill; faces procedural vote Jan. 24


      • Schlumberger (SLB) 6 a.m., $1.09
      • SunTrust Banks (STI) 6 a.m., $0.27
      • Prosperity Bancshares (PB) 6:03 a.m., $0.76
      • Fifth Third (FITB) 6:30 a.m., $0.35
      • General Electric (GE) 6:30 a.m., $0.38
      • Comerica (CMA) 6:40 a.m., $0.51
      • First Horizon National (FHN) 7 a.m., $0.14
      • Parker Hannifin (PH) 7:30 a.m., $1.63



  • Oil Trims Weekly Gain as Greek Risk Offsets U.S. Rebound Hopes
  • Gold Falls as Dollar’s Advance, Asian Holidays May Curb Demand
  • Copper Falls as Chinese Manufacturing May Shrink for Third Month
  • Copper Bears Retreat as Prices Rally Most Since ‘87: Commodities
  • Sugar Rises on Limited Supply Before Brazil’s Crop; Coffee Gains
  • Corn Declines as Council Forecasts Record Global Production
  • Coffee Output in India May Miss Estimate on Rains, Group Says
  • Pemex’s Offering Spurs Busiest Week Since August: Mexico Credit
  • Korean Shipyards to Buy 12% Less Steel as Slump Hits Posco
  • Gold May Gain 8.7% to Near Fibonacci Level: Technical Analysis
  • Wildcatter Finds $10 Billion Drilling in North Dakota: Energy
  • Batista’s MMX Not Interested in Deal With Falcone-Backed Ferrous
  • North Korea Sees Chinese Storming in as Mineral Wealth Attracts
  • COMMODITIES DAYBOOK: Gold Set for Best Weekly Run in Two Months
  • Kinross in Play After Paying Too Much in African Gold: Real M&A
  • U.S. Steel Bonds Rebound to Par on Auto Sales: Corporate Finance
  • Copper Traders Probably Closed Out Bets on Declining Prices






















The Hedgeye Macro Team





Re-Shape The Debate

“I am trying to re-shape and improve my central position.”

-John Maynard Keynes


After getting publically steam-rolled for his failed government “stimulus” experiments of the late 1920s, that’s what Keynes finally admitted to Hayek in 1932. Keynes went on to tell Hayek that changing his views is “probably a better way to spend one’s time than in controversy.”


Classic. Can you imagine if Ben Bernanke and Larry Summers had it in them to change their central planning strategies as the facts have? Sadly, you probably can’t. That’s the anchor of Academic Dogma in our Ivy League towers that will take time to creatively destruct.


Keynes, of course, used willful blindness to alternative economic strategies like Hayek’s just as well as Bernanke and Geithner do: “Keynes admitted in a Treatise on Money that ‘in German, I can only clearly understand what I already know – so that new ideas are apt to be veiled from me by the difficulties of the language.” (Keynes Hayek, page 139).


It’s a good thing Albert Einstein was able to Re-Shape The Debate of his time in English…


Back to the Global Macro Grind


Solution - the 3 core factors our team focuses on from a Fundamental Macro Modeling perspective when we look at countries are:


Since our models have actually worked in calling the big Growth and Inflation turns for the last 4 years, we think it’s high-time to Re-Shape The Debate on how leaders (running countries, companies, or trading P&Ls) consider these 3 factors.


Rather than compounding Keynesian mistakes in forecasting Growth and Inflation by slapping random multiples on the economic growth that countries do or do note generate (with a 30-80% tracking error in their forecasts), this is what we do:

  1. Measure the Slope (accelerating or decelerating) of Growth and Inflation
  2. Apply Predictive Tracking Algorithms to all Growth and Inflation data we can find to generate an estimated range of outcomes
  3. Hammer out the reps each and every morning across all of Global Macro to adjust our models for any new Growth/Inflation data

Then, on a risk adjusted basis, we decide if there is:


A)     An acceleration in the existing slope (going from good to great is the same thing as going from bad to toxic)

B)      A deceleration in the existing slope (going from great to good is the same thing as going from toxic to bad)

C)      A centrally planned policy to attempt to arrest the gravitational force of the slope


Hopefully I didn’t lose you yet (I didn’t write it in German, but it’s math – which, seemingly, Bernanke and Summers should understand even if I wrote this in Mandarin-Canadian).


If I did lose you, here’s what it means in term of what’s changed from a Fundamental Macro Modeling perspective since we’ve made an explicit change in our call on Global Macro markets in December (we’re long Growth (Equities) and out of Fixed Income):

  1. GROWTH: US, Chinese, and German Growth (our Big Mac-cro 3) have all decelerated at a slower rate = bullish
  2. INFLATION: Globally, we’ve seen a Deflation of the Inflation (US CPI dropped from 3.4% NOV to 3.0% in DEC) = bullish
  3. POLICY: Bernanke/Geithner haven’t been able to debauch the US Dollar and Germany is being fiscally/monetarily conservative

What would make our models change back to the bearish side (i.e. Growth Slowing re-accelerates on the downside and Inflation re-accelerates on the upside)?

  1. Ben Bernanke goes to Qe3
  2. Obama and Geithner go way left on fiscal spending
  3. Germany folds to French demands for Euro bonds (money printing) and bank bailouts

After 4 long years of Jobless Stagflation, look at what getting Bernanke, Geithner, and Sarkozy out of the way is doing – yesterday’s US jobless claims print of 352,000 was the best jobs number we’ve seen since March of 2008!


Strong Dollar = Stronger Consumption (inflation deflates), Stronger Confidence, and Stronger Employment. Period.


Whoever is begging Bernanke for policies to inflate (Qe3) is effectively begging for my model to break down (begging for Inflation to accelerate and slow real (inflation adjusted) US, Chinese, Brazilian, etc. Consumption Growth).


If you’re an exporter in Michigan, you don’t like this. If you’re making BMW’s in Germany, or putting gas in yours in New Jersey, you love it. The only people that want weak currencies are the people who need them to get paid.


Rather than having CNN focus a US Presidential Debate on “open marriages”, it’s time to get real in this country. It’s time to get serious about the evolution in our economic thinking. It’s time to Inspire, Re-work, and Re-Shape the Real-Time Economic Debate.


My immediate-term support and resistance ranges for Gold, Oil (Brent), EUR/USD, US Dollar Index, Shanghai Composite, German DAX, and the SP500 are now $1, $109.85-112.11, $1.26-1.30, $80.19-80.97, 2, 6, and 1, respectively.


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Re-Shape The Debate - Chart of the Day


Re-Shape The Debate - Virtual Portfolio

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Squeezy: SP500 Levels, Refreshed

POSITIONS: Long Consumer Discretionary (XLY), Consumer Staples (XLP) and Utilities. Short Russell 2000 (IWM).


While the short squeeze (see chart) from my long-term TAIL breakout line (1267) has been proactively predictable, the short squeeze you’re seeing at the top of this immediate-term TRADE move in certain high-short interest stocks/ETFs/etc has been epic.


In the very immediate-term (I mean 3 trading hours to 3 days) this is where the Pain Trade tends to capitulate – more so in certain stocks than the stock index. Ultimately, provided that the US Dollar strength and US employment improvement continues, I think we’re headed toward a 1363 test. That will take more time.


For now, here are the lines I want to be managing gross and net exposure risk around: 

  1. Immediate-term TRADE overbought = 1314
  2. Immediate-term TRADE support = 1293
  3. Long-term TAIL support = 1267 

Another way to think about this is in terms of your beta-adjusted gross and net exposure. On the way towards 1314, you want to beta-shift to lower beta long positions, and take a few shots at higher-beta shorts that have been squeezed.




Keith R. McCullough
Chief Executive Officer


Squeezy: SP500 Levels, Refreshed - SPX

HBI: Shorting

Keith re-shorted Hanesbrands this morning – again -- on strength. It remains one of our top intermediate-term shorts.


HBI: Shorting - HBI TTT

Trade Update: Shorting EUR/USD (FXE)

Positions in Europe: Short FXE

Keith shorted the EUR/USD via the eft FXE today in the Hedgeye Virtual Portfolio with the price bumping up against our immediate term TRADE resistance level of $1.29. Our bearish view on the EUR and bullish view on the USD haven’t changed, but the price did. Keith took the opportunity to short FXE at $128.28. Our intermediate term TREND resistance level remains broken at $1.33 (see chart below).


Matthew Hedrick

Senior Analyst


Trade Update: Shorting EUR/USD (FXE) - 1. EUR heut

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